Drastically Lower Oil Means Gold Stocks Will Head Higher

Gold stocks have been in the tank now for a little longer than three years. That's just long enough for investors to write them off and forget about them.

And those who do still have them on their radar wouldn't touch them with a 10-foot pole. Why? Everyone has told them not to buy them. Plus they've seen them go down for at least three years and they can never see a day when that would change.

However, now we're getting some catalysts that are going to pull gold stocks out of the ditch and back onto the road.

Gold itself is perking back up lately. Why? China, India and Russia are all beefing up their central bank reserves with gold lately. Also, stocks are terribly expensive and terribly volatile right now, so owning some gold helps to cure some of these jitters. Therefore, institutions (and moms and pops alike) have been buying up some gold lately due to these huge market swings at these lofty levels.

It's also interesting to note lately that all of the metals are moving up in unison, which is an overall sign of strength for the metals in general . . . especially gold.

I've also noticed that gold is moving up in other currencies. Gold in euros is moving higher and it's the same with the pound, yen, Canadian dollar, Swiss franc, Aussie dollar, etc. So it's likely only a matter of time before gold rises notably in dollar terms as well.

In fact, with the way gold and silver have been rising, even on days when the dollar has been up, tells me that this steep dollar rally that's gotten so much media attention lately is likely about to turn south once again.

In fact, the U.S. Dollar Index, once it gets as stretched away from its 50- and 200-week moving averages as it is now, historically will reverse lower to meet those averages once again. If that happens as it has in the past, gold's price will soar just off of that fact alone.

But not only are gold stocks soaring because gold itself is firming up, but the oil price has cut in half in just over five months. This is a biggie! Why? Mining for gold is a very energy-intensive business. So it takes a lot of oil to be able to dig deep into the Earth for the shiny yellow metal.

Well, when oil's price literally cuts in half, these mining companies get a "break of a lifetime" on their costs. And since these costs drop so much, it lowers their breakeven costs for gold (which is the price at which digging for gold becomes profitable).

The lower the breakeven price they have, the wider their profit margins become even if gold just hovers around and doesn't gain any ground. But when you put the two together and you have drastically declining oil costs with firming and rising gold prices, you have a beautiful picture for gold mining companies. That's about as close to "their ship coming in" as it gets.

Between these two dynamics (lower oil costs and rising gold prices), the profit margins widen for these companies and their earnings go up. As their earnings increase, it gives their stock price a legitimate reason to appreciate as well (and to be able to sustain those appreciated levels).

Therefore, right now is a great time to buy these gold miners. Instead of trying to cherry pick which ones might prosper the most, you might just consider buying a gold miner's exchange-traded fund instead.

But whatever you do, buy gold miners now while they are hated and on almost no one's radar. You want to beat the large institutions to the punch so that you're already positioned as they buy up millions of shares and drive your position higher.

God bless!

About the Author:Sean Hyman
Sean Hyman is a member of the Moneynews Financial Brain Trust.Click Hereto read more of his articles. He is also the editor of Ultimate Wealth Report. Discover more byClicking Here Now.